JT.C.I.T. RG. 17(1), MUMBAI V. PARAMOUNT FORGE, MUMBAI

ITA 4580/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88455 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: SONALEE GODBOLE
• Keywords: Rule of consistency; Permanent establishment
• Section: 43B; 133(6); 194C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.4580/MUM/2012 (A.Y.2008-09) ACIT 17(1) 1 ST FLOOR, ROOM NO.113 PIRAMAL CHAMBERS LALBAUG, PAREL (APPELLANT ) VS. M/S. PARAMOUNT FORGE , 3-GURU HIMMAT-140 MOUNT ROAD, MAZGAON MUMBAI-400 020. GIR NO./PAN :AAAFP 8254 B (RESPONDENT) APPELLANT BY : SHRI PREMANAND J. - DR RESPONDENT BY : MS. SONALEE GODBOLE - AR DATE OF HEARING : 24 /02/2015 DATE OF PRONOUNCEMENT : 24 /02/2015 ORDER PER CHANDRA POOJARI, A.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) DATED 24/4/2012 FOR THE ASSESSMENT YEAR 2008-08. THE FIRST GROUND IN THIS APPEAL IS AS FOLLOWS :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO VERIFY AND ALL OW THE CORRECT PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND OF RS .66,700/- UNDER SECTION 36(1)(VA) OF THE ACT BY RELYING ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION LTD. REPORTED IN 319 IT R 306, WHEREAS THE JUDGMENT RELATES TO EMPLOYERS CONTRIBUTION AND NOT EMPLOYEES CONTRIBUTION. 2. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IT IS BROUGHT ON RECORD BY THE LD. AR THAT THE PAYMENTS OF RS.58,620/- ( CA STING ERROR BY AO WORKED AT RS.66,700/- ) IS AS FOLLOWS :- 2 ITA NO.4580/M /12 MONTH AMOUNT(RS.) DUE DATE DATE OF PAYMENT APRIL 19,086 15.05.2007 24.5.2007 MAY 19,671 15.06.2007 18.6.2007 AUGUST 19,863 15.09.2007 20.9.2007 TOTAL 58 ,620 CASTING ERROR BY AO 66,700 2.1 HENCE, IT IS SUBMITTED THAT THE PAYMENT HAS BEE N MADE WITHIN DUE DATE OF FILING OF RETURN OF INCOME I.E. 30/9/2008 A ND THERE IS A JUDGMENT IN FAVOUR OF THE ASSESSEE IN THE CASE OF CIT VS. GHATGE PATIL TRANSPORT (368 ITR 749) (BOM.) WHEREIN, IT WAS HELD THAT WHEN THE PAYMENTS OF EMPLOYEES CONTRIBUTION TO THE PF, EMPLOYEES STATE I NSURANCE AND PENSION FUND WITHIN DUE DATE OF FILING OF RETURN OF INCOME TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE AN D AMENDMENT TO SECTION 43B W.E.F. 1/4/2004 WHEREIN TWO CHANGES WER E MADE IN SECTION 43B, FIRSTLY, BY DELETING THE 2 ND PROVISO AND FURTHER AMENDMENT IN THE FIRST PROVISO AND THEREBY, THIS AMENDMENT PROVIDED BY FIN ANCE ACT 2003, PUT ON PAR THE BENEFIT OF DEDUCTION OF TAX, DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTION TO VARIOUS EMPLOYEES WELFARE FUND ON THE OTHER. 3. IN VIEW OF THE ABOVE JUDGMENT OF THE JURISDICTI ONAL HIGH COURT IN THE CASE OF GHATGE PATIL TRANSPORT (SUPRA), WE ARE INCL INED TO DECIDE THE ABOVE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE IS REJECTED. 4. THE NEXT GROUND RAISED BY THE REVENUE IS AS FOLL OWS :- 3 ITA NO.4580/M /12 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.6,09,8 32/- UNDER SECTION 41(1) REGARDING SUNDRY CREDITORS OUTSTANDING FOR MORE THA N 3 YEARS, WITHOUT CONSIDERING THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. REPORTED IN 222 ITR 32 4 AND DECISION OF HONBLE ITAT, MUMBAI IN THE CASE OF CIT VS. PHOENIX MILS LTD. REPORTED IN 83 ITD 65. 4.1 THE AO HAD DISCUSSED THE ABOVE ISSUE IN PARA 5. 1 TO 5.3 OF THE ASSESSMENT ORDER. HE CAME TO THE CONCLUSION THA T THE LIABILITIES WERE OUTSTANDING FOR QUITE LONG TIME AN D AS PER LAW OF LIMITATION, THE LIABILITIES WERE UNPAID FOR MORE TH AN THREE YEARS AND THERE WAS NO LIKELIHOOD OF MAKING ANY PAYMENT T O THE CREDITORS. RELYING ON VARIOUS CASE LAWS THE AO MADE AND ADDITION OF RS.6,09,832/- UNDER SECTION 41(1) OF THE ACT. 4.2 DURING THE COURSE OF APPELLATE PROCEEDINGS THE LD. AR OF THE ASSESSEE SUBMITTED A CHART CONTAINING THE DETAILS O F FIVE CREDITORS ON WHOM ADDITIONS WERE MADE, WHICH IS AS UNDER :- DETAILS OF CREDITORS OUTSTANDING FOR MO RE THAN ONE YEAR S.NO. NAME AND ADDRESS OF THE PARTY NATURE OF LIABILITY DATE SINCE WHEN OUTSTANDING AMOUNT OF BILL (RS.) AMOUNT OUTSTANDING (RS.) 1. SUPERIOR MARKETING 7 SERVICES 225-A, VARDHMAN TOWER, PREET VIHAR COMMUNITY CENTRE PURCHAS E OF RAW MATERIAL 2005 - 06 1,87,127 1,87,127 4 ITA NO.4580/M /12 DELHI - 110032. 2. DR. GANGULY ENGINEERS 7 CONSULTANTS 57, CHURCHGATE CHAMBERS, 5, NEW MARINE LINES, MUMBAI-400 020. COMMISSION PAYABLE 2005 - 06 4,48,654 60,336 3. MARS FORGE PVT. LTD. RAJKOT-GONDAL, N.H.-8-B, SURVE NO.247/P, SHAPER TAL; KOTDA SANGANI, DIST RAJKOT GUJARAT. PURCHASE OF RAW MATERIAL 2006 - 07 1,50,558 1,50,558 4. ROLSTRIPS (INDIA) 517, CHURCHGATE CHAMBERS, 5 NEW MARINE LINES, MUMBAI-400 020. COMMISSION PAYABLE 2005 - 06 74,477 74,477 5. WIKUS - NIRAN SAWS PLOT NO.18-4, FIRST FLOOR, MODERN INDS. ESTATE, KACHIGAM, DAMAM, GUJARAT-396 210. PURCHASE OF STORES 2006 - 07 1,37,325 1,37,325 9,98,141 6,09,823 5 ITA NO.4580/M /12 4.3 IN RESPECT OF SR.NO.2,3, AND 5 IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT THE PAYMENT HAS BEEN MADE IN THE F.Y. 2011-12 AND IN RESPECT OF SL.NO.1, THE AMOUNT WAS STILL SHOWN AS U NPAID IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND IN RESPECT OF SL.NO.4, I.E., ROLSTRIPS (INDIA) IT WAS CLAIMED THAT THE SAME WAS WRITTEN BACK IN THE F Y 2010-11. IN VIEW OF THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE IT WAS C ONTENDED THAT THE AO CANNOT MAKE ANY ADDITION UNDER SECTION 41(1)OF THE INCOME TAX ACT. 4.4 THE LD. CIT(A) OPINED THAT THE ENTIRE TRANSACTI ONS WITH REGARD TO THE FIVE PARTIES WERE DULY REFLECTED IN THE BOOKS OF AC COUNT AND THE LIABILITIES WERE REFLECTED IN THE BALANCE SHEET, WHICH WAS FILE D ALONG WITH RETURN OF INCOME. THE LD. CIT(A) WAS OF THE VIEW THAT JUST BE CAUSE THERE WAS NO RESPONSE TO NOTICES ISSUED UNDER SECTION 133(6) AND THE PARTIES WERE NOT PRODUCED PERSONALLY, THE AO COULD WAS WRONG IN CONC LUDING THAT THE LIABILITIES CEASED TO EXIST. THE AO ALSO NEVER PROV ED THAT THERE WAS CESSATION OF LIABILITY IN RESPECT OF THESE FIVE PAR TIES. THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE DETAIL S WITH REGARD TO THE CREDITORS FROM WHOM THE LIABILITY WAS IN EXISTENCE. BUT HOWEVER, DURING THE ASSESSMENT PROCEEDINGS IT WAS BROUGHT TO THE NOTICE OF THE AO THAT WITH REGARD TO SUPERIOR MARKETING & SERVICES AND WIKUS N IRAN SAWS, THE ASSESSEE COULD NOT MAKE THE PAYMENT DUE TO CERTAIN TECHNICAL DEFECTS AND IN THE CASE OF DR. GANGULY ENGINEERS & CONSULTANTS AND ROLSTRIPS (INDIA), IT WAS THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT S WERE HELD UP BECAUSE OF REJECTION OF RAW MATERIAL BY TRI LAD FLA NGE AND FITTINGS, INC., CANADA, AND WHEREAS IN RESPECT OF MARS FORGE P. LT D., THE SAME WAS WRITTEN BACK IN F.Y. 2010-11. THE LD. CIT(A) OBSERV ED THAT THERE CANNOT BE 6 ITA NO.4580/M /12 ANY ADDITION UNDER SECTION 41(1) OF THE INCOME TAX ACT AND DELETED THE ADDITION MADE BY AO UNDER SECTION 41(1) OF THE ACT AS CESSATION LIABILITY. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. IT IS SUBMITTED BY THE LD. AR THAT MOST OF THE ABOVE LIABILITIES WERE SETTLED BY THE ASSESSEE IN SUBSEQUENT ASSESSMENT YE ARS AND IN THE ASSESSMENT YEAR UNDER CONSIDERATION THESE LIABILITI ES WERE VERY MUCH EXISTING. THE AO CANNOT UNILATERALLY TREAT IT AS CE SSATION LIABILITY. THE AO TREATED THESE LIABILITIES AS CESSATION LIABILITIES AS SINCE THERE WAS NO RESPONSE TO THE NOTICE ISSUED TO THESE PARTIES UNDE R SECTION 133(6) OF THE ACT. JUST BECAUSE THE PARTIES DID NOT APPEAR PERSON ALLY BEFORE THE AO IT CANNOT BE DEEMED THAT LIABILITIES CEASED TO EXIST. THERE IS NO POSITIVE MATERIAL BROUGHT ON RECORD TO SUGGEST THAT THIS LIA BILITY CEASED TO EXIST. MORE SO, WHEN THE ASSESSEE ITSELF OFFERED AS INCOME IN RESPECT OF SL.NO.4 OF THE ABOVE ITEM AND PAYMENTS WERE MADE IN RESPECT OF SR.NO.2,3, AND 5 AND IN RESPECT OF S.NO.1 THE AMOUNT IS STILL SHOWN AS OUTSTANDING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IT IS PRE-POSTROUS TO TREAT THESE CREDITS AS NON-EXISTING IN THE ASSESSMENT YEAR UNDER CONSIDERA TION BY AO. ACCORDINGLY, IN OUR OPINION THE DELETION IN ADDITIO N MADE BY THE AO UNDER SECTION 41(1) BY CIT(A) IS JUSTIFIED. THE ORDER OF CIT(A) ON THIS ISSUE IS UPHELD. THIS GROUND IS REJECTED. 6. GROUND NO.3 IS AS FOLLOWS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.30,00,570/ - MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK WITHOUT TAKING INTO ACCOUNT THAT THE ASSESSEE 7 ITA NO.4580/M /12 FOLLOWS FIFO METHOD OF VALUATION OF CLOSING STOCK A ND THE AO HAD CORRECTLY TAKEN VALUE OF PURCHASES MADE DURING LAST WEEK OF T HE MONTH. 6.1 FACTS OF THE CASE ARE THAT THE AO HAD ASKED FOR MONTH WISE DETAILS IN RESPECT OF STAINLESS STEEL, ITEM CODE 304/304L AND 316/316L. FOR CARBON STEEL ITEM A-105 SIMILAR DETAILS WERE CALLED. BASED ON THE PURCHASE MADE DURING THE MONTH OF FEBRUARY AND MARCH, 2008 AND AP PLYING THE PRINCIPLES OF FIFO METHOD OF VALUATION THE AO WORKED OUT THE S UPPRESSION IN STOCK FOR THE ABOVE ITEMS OF STEEL. THE AO CAME TO ABOVE CONCLUSION, AS SUBSTANTIAL PURCHASES WERE MADE IN THE MONTH OF MAR CH AND ALSO MOST OF THE STOCK PURCHASED WERE LYING AT THE END OF THE YE AR. FURTHER, HE WAS OF THE OPINION THAT THE VALUE OF THE CLOSING STOCK COU LD NOT BE LESS THAN THE PURCHASE PRICE. HENCE, HE MADE THE ABOVE ADDITION. 6.2 ON APPEAL, THE LD. CIT(A) OBSERVED IT IS A FACT THAT THE CARBON STEEL AND STAINLESS STEEL COMPRISES OF VARIOUS SIZE S AND AS PER THE ASSESSEE THERE WERE ABOUT 50 DIFFERENT ITEMS LYING IN THE CLOSING STOCK. THE AO HAD TAKEN ONLY THE MAIN ITEM CODE ON A BROAD CATEGORY. HENCE IT WAS VERY DIFFICULT TO CORRELATE EACH AND EVERY ITEM OF CLOSING STOCK WITH THE PURCHASE BILL, WHICH ACCORDING TO HIM, WAS A BA SIC MISTAKE COMMITTED BY THE AO. FURTHER THE ASSESSEE WAS CONSI STENTLY VALUING THE CLOSING STOCK BASED ON THE WEIGHTED AVERAGE PUR CHASE OF THE LAST 3 MONTHS FOR THE LAST SEVERAL YEAR. ACCORDINGLY THE C LOSING STOCK WAS VALUED BASED ON THE AVERAGE VALUE OF PURCHASE IN TH E LAST 3 MONTHS FOR THIS YEAR ALSO. THE CIT(A) OBSERVED THAT THE AO HAD TAKEN THE PURCHASE VALUE ONLY FOR THE MONTH OF MARCH 2008 AND ALSO IGN ORED THE PRINCIPLE OF CONSISTENCY FOLLOWED BY THE ASSESSEE . 8 ITA NO.4580/M /12 6.3 FURTHER, HE OBSERVED THAT , ACCOUNTING STANDARD -2 RECOGNIZES THE WEIGHTED AVERAGE COST METHOD FOR VALUATION OF INVEN TORY. PARA 16 OF THE AS 2 IS REPRODUCED BELOW: THE COST OF INVENTORY TO THE OTHER THAN THOSE DEA LT WITH WITHIN PARA 14 SHOULD BE ASSIGNED BY USING THE FIRST AND FIRST OUT ARE WEIGHTED AVERAGE COST OF THE FORMULA. THE FORMULA USED REFLECT THE FAIRNE SS BUT POSSIBLE PROXIMISATION TO THE COST INCURRED IN BRINGING THE ITEMS OF INVENTORY TO THEIR PRESENT LOCATION AND CONDITION. 6.4 HE ALSO OBSERVED THAT AS-2 RECOGNIZES BOTH FIF O AS WELL AS WEIGHTED AVERAGE COST. THE ASSESSEE HAS FOLLOWED TH E LATER AND THERE IS NOTHING WRONG IN FOLLOWING THE WEIGHTED AVERAGE COS T METHOD. 6.5 FURTHER LD. CIT(A) OBSERVED THAT SECTION 145A C LEARLY STIPULATES THAT THE VALUATION OF THE INVENTORY SHOULD BE IN ACCORDA NCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. WHEN THE ASSESSEE HAS BEEN FOLLOWING CONSISTENTLY ONE PARTICULAR METHOD O F VALUATION OF INVENTORY, IT WAS OPINED BY THE CIT(A) THAT THE AO CANNOT THINK OF ALTERING THE SAME UNLESS HE IS SATISFIED WITH THE CORRECTNES S OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE . 6.6. THE LD. CIT(A) WAS OF THE VIEW THAT THE ADDITI ON MADE TO THE CLOSING STOCK CANNOT BE REGARDED AS A SOURCE OF PRO FIT WHICH IS NOTHING BUT A PRINCIPLE OF BALANCING. THE TRUE PURP OSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST ENTERE D ON THE OTHER SIDE OF THE ACCOUNT AT THE TIME OF THEIR PURCHASE SO THAT T HE CANCELLING OUT OF ENTRIES RELATING TO THE SAME STOCK FROM BOTH THE SI DES OF THE ACCOUNTS WOULD LEAVE ONLY THE TRANSACTION ON WHICH THERE HAS BEEN ACTUAL SALES TO 9 ITA NO.4580/M /12 SHOW THE PROFIT OR LOSS ACTUALLY REALIZED. THE REVE NUE IMPACT ON SUCH ADDITION RESULT IN A REVENUE NEUTRAL SITUATION. WHA TEVER ADDITION ONCE MADE TO THE CLOSING STOCK IT IS GOING TO THE OPENING STO CK IN NEXT YEAR. IN FACT, THERE WILL NOT BE ANY LEAKAGE OF REVENUE. THE ABOVE PROPOSITION HAS BEEN LAID DOWN IN THE CASE OF CIT VS. INDO NIPPON C HEMICAL COMPANY LTD. 245 ITR 384 (BOM.). THUS, HE DELETED THE ABOVE ADDITION. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED TH E MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSEE CONSISTENTLY V ALUING CLOSING STOCK BASED ON THE WEIGHTED AVERAGE PURCHASE OF LAST THRE E MONTHS FOR THE LAST SEVERAL YEARS. SAME METHOD WAS FOLLOWED FOR THIS AS SESSMENT YEAR . CONTRARY TO THIS THE AO HAS TAKEN THE PURCHASE VALU E ONLY FOR THE MONTH OF MARCH 2008. HE HAS DISREGARDED/DISTURBED THE METHOD FOLLOWED BY THE ASSESSEE CONSISTENTLY WHICH IS NOT PROPER WITH THE METHOD FOLLOWED BY THE AO TO VALUE THE CLOSING STOCK GIVING THE DISTORTED PICTURE OF ASSESSEES FINANCIAL POSITION WHICH IS TO BE AVOIDED. SECTION 145A STIPULATES THAT VALUATION OF INVENTORY SHOULD BE DONE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. AS S UCH, THE AO IS PRECLUDED FROM DISTURBING THE METHOD OF VALUATION F OLLOWED BY THE ASSESSEE CONSISTENTLY. IN OUR OPINION CIT(A) HAS T AKEN AN APPROPRIATE VIEW IN THIS CASE AND HAS DELETED THE ADDITION AND THE S AME IS UPHELD. 8. ANOTHER ASPECT IS THAT THE ASSESSEE HAS DEALT WI TH 50 DIFFERENT ITEMS OF STAINLESS STEEL AND CARBON STEEL EACH OF WHICH H AD DIFFERENT DIMENSIONS AND DIFFERENT MARKETABILITY AND THE VALUATION SHOUL D HAVE BEEN ACCORDING 10 ITA NO.4580/M /12 TO THE SIZES WHICH THE AO HAD NOT DONE. IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE AO INCLUDED GROSS BILL AMOUNT VAT AND CENTRAL EXCISE WHILE ARRIVING AT THE VALUATION OF CLOSING STOCK BU T THE ASSESSEE HAS NOT ADDED THE SAME TO THE INVENTORY. IF THIS ASPECT IS CONSIDERED THEN THERE WILL NOT BE MUCH DIFFERENCE. IN SUPPORT OF THIS CON TENTION, THE ASSESSEE HAS GIVEN THE WORKING IN RESPECT OF THE VALUATION OF CL OSING STOCK WHICH WAS APPEARING IN ANNEXURE B & C OF ITS SUBMISSIONS. WHE N THE AO HAD ADDED VAT AND ED TO THE CLOSING STOCK, THEN HE SHOULD HAV E DONE A SIMILAR ADJUSTMENT TO THE OPENING STOCK ALSO. BUT THIS WAS NOT DONE BY THE AO. THE AO WITHOUT APPRECIATING THIS FACT HAD ARRIVED A T A WRONG CONCLUSION. 9. WE HAVE CAREFULLY GONE THROUGH THE ABOVE FINDING OF LD. CIT(A) . WE FIND THAT THE FINDING OF LD. CIT(A) IS IN CONFORMIT Y WITH THE JUDGMENT IN THE CASE OF ACIT VS. TORRENT CABLES LTD. (354 ITR 163)(SC) , WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE IS FOLLOWING NET METHO D OF VALUATION OF CLOSING STOCK, AND INCLUDED EXCISE DUTY AT THE TIME OF REMOVAL OF GOODS. THE HONBLE HIGH COURT UPHELD THE ORDER OF THE TRI BUNAL STATING THAT TRIBUNAL WAS RIGHT TO EXCLUDE THE EXCISE DUTY AT TH E TIME OF VALUING CLOSING STOCK AT THE END OF THE ACCOUNTING PERIOD. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE GROUND OF THE REVENUE IS TO BE DIS MISSED. 10. GROUND NO.4 IS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.48,94, 765/- MADE U/S. 40(A)(IA) WITHOUT TAKING INTO CONSIDERATION DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF ACC LTD. VS. CIT REPORTED IN ITAT MUMBAI IN SATELLITE TELEVISION ASIA REGION LTD. VS. DY. COMMISSIONER OF INCOME-TAX REPO RTED IN 99 ITD 91. 11 ITA NO.4580/M /12 10.1 FACTS OF THE CASE ARE THAT THE AS PER DETAILS FURNISHED BY THE ASSESSEE A SUM OF RS.48,93,765/- WAS PAID TO M/S. V ISHAL SHIPPING AGENCIES PVT. LTD. ON WHICH ASSESSEE HAD NOT DEDUCT ED TAX AT SOURCE. HENCE, IT IS HIT BY THE PROVISION OF SECTION 40(A) (IA) OF THE INCOME TAX ACT. THE AO HAS DISCUSSED THE SAME IN DETAIL IN PARA 7.1 TO 7.8 OF THE ASSESSMENT ORDER DT. 28.12. 2010 AND IS OF THE VIEW THAT SECTION 194C IS APPLICABLE TO THE SUMS PAID BY M/S. VISHAL SHIPPING AGENCY P. LTD. AND SINCE NO TDS HAD BEEN DEDUCTED, PROVISIONS OF SECTI ON 40(A)(IA) IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IN SUPPORT OF HIS CONTENTION THE AO HAS RELIED ON VARIOUS CASE LAWS. 10.2 THE LD. CIT(A) OBSERVED THAT IT WAS THE SUBMIS SION OF THE ASSESSEE THAT OUT OF TOTAL PAYMENT OF RS.49,07,537/- MADE TO M/S. VISHAL SHIPPING AGENCY PVT. LTD. A SUM OF RS.1,09,600/- WAS THE AGE NCY FEE PAID ON WHICH TDS HAS BEEN PROMPTLY DEDUCTED. THE BALANCE SUM OF RS.48,94,765/- WAS REIMBURSEMENT OF EXPENDITURE INCURRED BY THE CLEARI NG AGENTS TOWARDS PRIMARY HANDLING CHARGES, TRANSPORT CHARGES, OCTROI , FREIGHT, DOCUMENTATION, INSURANCE ETC. ON BEHALF OF THE ASSE SSEE AND HENCE, THE PROVISIONS OF CHAPTER XVIIB WAS NOT APPLICABLE. IN THE CASE OF THE ASSESSEE , BILLS RAISED BY M/S. VISHAL SHIPPING AGENCY P. L TD. CLEARLY SHOWED THAT THE REIMBURSEMENT OF EXPENDITURE SEPARATELY BASED ON WH ICH THE PAYMENTS WERE MADE. ACCORDING TO LD. CIT(A) SECTION 194C IS APPLICABLE IN WHICH A COMPOSITE BILL IS RAISED WHICH DOES NOT DIFFERENTIA TE BETWEEN REIMBURSEMENT AND OTHERS. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 12 ITA NO.4580/M /12 10.3 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. SIMILAR ISSUE WAS CONSIDERED I N THE CASE OF CIT VS. GUJARAT NARMADA VALLEY FERTILIZER CO. LTD. (361 ITR 192), WHEREIN IT WAS HELD THAT THE EXPENSES WERE INCURRED BY THE AGENT O N BEHALF OF THE ASSESSEE FOR TRANSPORTATION AND OTHER CHARGES, WHIC H HAS BEEN SPELT OUT IN THE BILL ITSELF INCLUDING THE COMMISSION TO THE AGE NT. THE RELATION BETWEEN THE ASSESSEE AND THE AGENT WAS PRINCIPAL. THE OBLIG ATION TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF TRANSPORT CHARGES AND OT HER CHARGES WAS COMPLIED WITH BY THE AGENT, WHO HAD MADE PAYMENT ON ITS BEHALF. IN SUCH CIRCUMSTANCES NO DISALLOWANCE CAN BE MADE U/S. 40(A )(IA) OF THE ACT, ON THE AMOUNT REIMBURSED WHERE OBLIGATION TO DEDUCT TA X AT SOURCE FOR PAYMENT WAS COMPLIED WITH BY THE AGENT. THE SLP FIL ED AGAINST THIS WAS DISMISSED BY THE HON'BLE SUPREME COURT IN CC 175/20 14 DATED 17/01/2014. IT WAS ALSO BROUGHT TO OUR NOTICE THAT CO-ORDINATE BENCH IN THE CASE OF SHRI ALTAF I. MOTORWALA IN ITA NO.4755/ MUM/2012 DATED 26/08/2013 CONSIDERING SIMILAR ISSUE AND OBSERVED A S FOLLOWS :- 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTE NTIONS HAVE CAREFULLY BEEN CONSIDERED. LD. CIT(A) HAS GIVEN A CATEGORICAL FIN DING THAT AMOUNT OF RS.61,72,427/- PAID BY THE ASSESSEE TO CLEARING AND FORWARDING AGENT IS MERELY REIMBURSEMENT EXPENDITURE FOR WHICH THE AG ENT HAS RAISED A SEPARATE BILL FOR THESE EXPENDITURE. WHEREVER TDS WAS TO BE DEDUCTED HAS BEEN DEDUCTED BY THE AGENT AND PAID TO GOVERNMENT ACCOU NT ON BEHALF OF THE ASSESSEE. THEREFORE, ASSESSEE CANNOT BE ASKED TO DEDUCT TAX OUT OF THE SAME AMOUNT. FOR THIS PURPOSE LD. CIT(A) HAS ALSO CONSIDERED COPY OF FORM NO.16A, WHICH REFLECTED THE DEDUCTION OF TAX BY TH E AGENT. LD. CIT(A) HAS ALSO FOUND THAT FROM THE SAMPLE OF AIR WAYBILL THAT AIRLINES HAD SHOWN, THE NAME OF THE ASSESSEE WHICH HAD BEEN REIMBURSED TO T HE ASSESSEE BY THE AGENT AND HANDLING CHARGES HAVE BEEN SEPARATELY BI LLED BY THE AGENT. LD. CIT(A) HAS ALSO FOUND THAT CIRCULAR IN THE PRESENT CASE WAS NOT APPLICABLE AS THERE ARE TWO SEPARATE INVOICES, ONE ISSUED IN RES PECT OF REIMBURSEMENT OF CHARGES AND OTHER FOR SERVICE CHARGES OF THE AGENT. NO CONTRARY MATERIAL HAS 13 ITA NO.4580/M /12 BEEN BROUGHT ON RECORD TO DISLOCATE AFOREMENTIONED FINDINGS RECORDED BY LD. CIT(A). THE DECISIONS RELIED UPON BY LD. AR SUPPOR T THE CASE OF THE ASSESSEE. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM THE C ASE OF M/S. OM SATYA EXIM PVT. LTD. VS. ITO (SUPRA) ARE REPRODUCED BELOW: 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW AND THE JUDGMENT CITED BY THE LEARNED COUNSEL FOR THE ASSES SEE. WE HAVE ALSO CONSIDERED BOARD CIRCULAR DATED 8-8-1975, COPY OF W HICH HAS BEEN SUBMITTED BY THE LEARNED DR OF THE REVENUE. IN THE PRESENT CASE, IT HAS BEEN SUBMITTED BEFORE US BY THE LEARNED AR THAT THE COMMISSION AGENT HAS RAISED SEPARATE BILLS FOR REIMBURSEMENT OF THE EXPENSES. WITH ALL THESE FACTS, WHEN WE CONSIDER THE BOARD CIRCULAR NO .7 15 DATED 8-8-1995, WE FIND THAT THIS BOARD CIRCULAR CANNOT BE MADE APP LICABLE TO THE PRESENT CASE BECAUSE IN THE PRESENT CASE, THERE IS NO COMPO SITE BILL RAISED BY THE COMMISSION AGENT AND AS PER THE LEARNED AR OF THE A SSESSEE, SEPARATE BILL WAS RAISED BY THE COMMISSION AGENT FOR REIMBURSEMEN T OF EXPENSES AND THE LEARNED DR COULD NOT CONTRADICT THIS SUBMISSION OF THE LEARNED AR OF THE ASSESSEE. WE ALSO FIND THAT THE TRIBUNAL HAS ALSO CONSIDERED THE BOARD CIRCULAR NO.7 15 DATED 8-8-1975 IN THE CASE O F DR. WILLMAR SCHWABE INDIA P. LTD. (SUPRA)AND IT WAS HELD THAT WHEN THE BILL FOR REIMBURSEMENT OF EXPENSES HAS BEEN SEPARATELY RAISED BY THE CONSU LTANT, SECTION 1941 IS NOT APPLICABLE. HENCE, BY RESPECTFULLY FOLLOWING TH IS TRIBUNAL DECISION, WE HOLD THAT IN THE PRESENT CASE ALSO, SINCE BILLS FOR REIMBURSEMENT OF EXPENDITURE HAVE BEEN RAISED BY THE COMMISSION AGEN T SEPARATELY, TDS WAS NOT REQUIRED TO BE DEDUCTED FROM SUCH REIMBURSE MENT OF EXPENSES AND AS A CONSEQUENCE, SECTION 40(A)(IA) IS NOT APPL ICABLE WITH REGARD TO SUCH PAYMENTS. OTHER TRIBUNAL DECISIONS CITED BY TH E LEARNED AR OF THE ASSESSEE RENDERED IN THE CASE OF MODICON NETWORK P. LTD., AND GRANDPRIX FAB P. LTD. (SUPRA) ALSO SUPPORT THE CASE OF THE AS SESSEE AND HENCE, BY RESPECTFULLY FOLLOWING ALL THE ABOVE TRIBUNAL DECIS IONS, WE HOLD THAT NO TDS IS REQUIRED TO BE DEDUCTED IN THE PRESENT CASE FOR REIMBURSEMENT OF EXPENSES FOR WHICH SEPARATE BILLS WERE RAISED BY TH E COMMISSION AGENT AND HENCE, THE PROVISIONS OF SECTION 40(A)(IA) IS N OT APPLICABLE TO SUCH PAYMENTS. THEREFORE, DISALLOWANCE MADE BY THE ASSE SSING OFFICER IS TO BE DELETED. 5.1 IN VIEW OF THE ABOVE DISCUSSIONS WE FIND NO INF IRMITY IN THE RELIEF GRANTED BY LD. CIT(A). WE DECLINE TO INTERFERE AND THE APP EAL FILED BY THE REVENUE IS DISMISSED. 14 ITA NO.4580/M /12 10.4 IN VIEW OF THE ABOVE WE ARE INCLINED TO DISMIS S THE GROUND TAKEN BY THE REVENUE. 11. GROUND NO.5 OF THE APPEAL IS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.2,60,8 64/- MADE U/S. 40(A)(IA) WITHOUT TAKING INTO CONSIDERATION DECISION OF ITAT MUMBAI IN SATELLITE TELEVISION ASIA REGION LTD. VS. DY. COMMISSIONER OF INCOME-TAX REPORTED IN 99 ITD 91. 11.1 THE FACTS OF THE CASE ARE THE ASSESSEE FIRM EX PORTED CERTAIN GOODS TO TRI-LAD FLANC, CANADA. THE ABOVE ITEMS WERE REJECTE D DUE TO CERTAIN DEFECTS. THE CONSIGNMENTS WERE RESHIPPED BACK TO IN DIA BY A CONTAINER FOR WHICH FREIGHT AND OTHER EXPENSES WERE INITIALLY INC URRED BY TRI-LAD BUT LATER WAS REIMBURSED BY THE ASSESSEE. ORIGINALLY, THE AMO UNT OF RS.2,60,846/- WAS PAID BY TRI-LAD TO KUEHNE NEGEL P. LTD. WHO WAS A FOREIGN FREIGHT AGENT. THE AO WAS OPINION THAT TDS HAS TO BE DEDUCT ED ON THE ABOVE PAYMENT BECAUSE INCOME ACCRUES OR ARISES IN INDIA T O THE NRI TRANSPORT AGENT BECAUSE OF THE DEEMING PROVISIONS IN SECTION 9(1)(I) AND SINCE AO MADE THE OBSERVATION THAT PAYMENT WAS MADE TOWARDS FREIGHT HENCE, SECTION 194C COMES INTO OPERATION. FAILURE TO DEDUC T TDS BY THE ASSESSEE RESULTED IN ADDITION OF THIS AMOUNT BY THE AO. 11.2 ON APPEAL CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE AND THE IMPUGNED ASSESSMENT ORDER OBSERVED THAT THE PAYMENT OF RS.2,60,846/- WAS MADE BY TRI LAD TO KUEHNE NAGAL A ND THE ASSESSEE HAD ONLY REIMBURSED THE SAID AMOUNT LATER TO TRI LAD. I N SUPPORT OF THIS PHOTOCOPIES OF CORRESPONDENCE WERE FURNISHED . A PE RUSAL OF DETAILS OF THE 15 ITA NO.4580/M /12 CORRESPONDENCE REVEALS THAT THE ASSESSEE HAD REQUET ED TRI LAD, CANADA TO MAKE PAYMENTS TO KUENHE NAGAL. THE CORRESPONDENCE F URTHER REVEALS THAT THE ASSESSEE ONLY MADE PAYMENT TO TRI LAD LATER AND NO PAYMENT HAS BEEN DIRECTLY MADE TO THE ASSESSEE BY NRI FREIGHT AGENT KUNEHE NAGAL. SINCE THE ABOVE PAYMENT WAS MADE BY WAY OF REIMBURSEMENT, THERE IS NO ELEMENT OF INCOME IN THIS TRANSACTION AND HENCE QUE STION OF TDS DOES NOT ARISE. FURTHER LD. CIT(A) OBSERVED THAT GOING BY E XPLANATION 2 TO SECTION 991)(I), THE NRI AGENT KUNEHE NAGAL SHOULD HAVE A B USINESS CONNECTION IN INDIA, AND IN THE ABSENCE OF SUCH PERMANENT ESTABLI SHMENT IN INDIA THE INCOME OF KUNEHE NAGAL IS NOT TAXABLE IN INDIA. THE AO THUS, FAILED TO PROVE THAT THE FOREIGN FREIGHT AGENT KUNEHE NAGAL HAD A PE IN INDIA, HENCE THE INCOME CANNOT ACCRUE OR DEEMED TO ARISE I N INDIA AND PROVISIONS OF SECTION 9(1)(I) IS NOT APPLICABLE. SINCE THE AB OVE SUMS ARE NOT TAXABLE IN INDIA, PROVISIONS OF CHAPTER XVIIB IS NOT APPLIC ABLE HENCE THE AO COULD NOT INVOKE THE PROVISIONS OF SECTION 40(A)(IA). THE REFORE THE CIT(A) DELETED THE ADDITION MADE, AGAINST THIS THE REVENUE IS IN A PPEAL BEFORE US. 11.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE RESPONDENT IS HAVING NO BUSINESS CONNECTION IN INDIA AND NO INCOME ACCRUED TO IT IN INDIA. THE RES PONDENT IS ALSO NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA. THUS T HE PROVISIONS OF SECTION 9(1)(I) IS NOT APPLICABLE AND THE SAID AMO UNT IS NOT TAXABLE IN INDIA. BEING SO CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND IS REJECTED. 16 ITA NO.4580/M /12 12. IN THE RESULT ITA NO.4580/MUM/2012 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 24/ 02/2015 !' # $%& 24/02/2015 ! ' SD/- SD/- ( . . / I.P. BANSAL) ( / CHANDRA POOJARI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; $% DATED 24/02/2015 . % . ./JV, SR. PS )*+ )*+ )*+ )*+ ,+'* ,+'* ,+'* ,+'* / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. )/-. / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 5. +1' )*% , , / DR, ITAT, MUMBAI 6. '2 3 / GUARD FILE. % % % % / BY ORDER, /+* )* //TRUE COPY// 4 44 4 / 5 5 5 5 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI